Sandy likely to cut gasoline demand but may also damage refineries

Hurricane Sandy is likely to cut into U.S. gasoline demand sharply, but it may also damage or at least force the closure of several major refineries on the East Coast.

“The storm is certainly going to be one of the most significant ‘demand destroyers’ of the century,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. “We were on a steady road toward cheaper U.S. gasoline prices nationwide.” While gasoline prices have risen in anticipation of the storm, “prices will resume a strong downward bias in November.”

However, Kloza cautioned, damage or closure of a refinery like the Phillips 66 plant in Linden, New Jersey or one of the Delaware River refineries “could alter the calculus.”

“Those are possibilities, he said. For now, it is “quite clear that demand destruction from this storm (flooded roads, no travel, businesses closed for 72 hours) will be about as significant as we’ve seen since [Hurricane] Katrina made landfall.”

Cuts in Northeastern refining output will put the U.S. at a “greater risk of increasing the deficit for diesel, heating oil and jet fuel inventories as we approach the winter,” Kloza said, adding that the market should be building these products in September and October and early November.

Right now, “we trail the five-year average inventory levels badly,” he said. So “the next oil price spike will not be for crude; nor will it be for gasoline. If it happens, it will occur for diesel, heating oil and perhaps even jet fuel.”

Story Conversation

About The Tell

The Tell is MarketWatch’s fast and engaging look at trends and themes in the day’s markets. Drawing on our reporters, analysts and commentators around the world, as well as selecting the best of the rest online, The Tell is all about the pulse of the markets through news, insight and strategic information to help you make the best investing decisions. Got a tip? Tell us at TheTell@MarketWatch.com